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Four years after the major U.S. stock indexes established lows and the recession troughed, and six months after the volatility cycle hit a critical inflection point, many investors remain distrustful of stocks, sidelined, or defensive.

That's true even as the S&P 500's 17% gain this year caused some investors' biological greed impulse to flare. But the environment of rising equity markets, low volatility, and increasing dispersion in the performance of individual stocks seems likely to continue for several years, punctuated by short and relatively shallow pullbacks, like the one we're now experiencing. Anyone who's been awaiting the perfect moment to re-engage with the market should exploit the current opportunity.

FROM JULY 2007 TO JANUARY of this year, the S&P 500 declined just 5%. This belies the circuitous path it took, which included a hair-raising 55% drop, followed by a 115% rally. Volatility, as measured by the VIX index, was persistently elevated over this period. The VIX averaged 25%, and intermittent shocks corresponded to month-over-month pullbacks for the S&P 500 that topped out at 30% in the fall of 2008. Not surprisingly, capital was reallocated to more defensive assets; $500 billion moved out of equity mutual funds.

But long-term volatility patterns are cyclical and correlated with the underlying economy. VIX's plunge at the beginning of January this year, following escalation of risk ahead of the fiscal cliff was the final signal that a new volatility regime had begun. I view this critical psychological inflection point as being similar to those in 1991 and 2003, each of which marked the beginning of extended stretches of low volatility. During these periods, the S&P 500 produced monthly gains averaging around 1%, while month-over-month pullbacks were capped at 7%.

With volatility low, individual stocks began to trade more idiosyncratically, based on company-specific news, rather than the broad market's moves. In turn, investors had the incentive to develop strategies in an attempt to outperform the major stock indexes. This was an impetus for a strong equity culture and market.

This year, a net $70 billion has flowed back into stocks. Coupled with an increase in options trading and a lift in call skew—the price disparity between out-of-the-money and at-the-money calls—this suggests that a new cycle is under way. And that investors can use options to take advantage of it.

Economically sensitive sectors particularly warrant investors' focus for the second half of 2013. In the past, these groups became market leaders only at the end of the first year of low-volatility periods, and that scenario appears to be playing out again. Since the April 18 low for the S&P 500, the best-performing sectors have been financials, technology, energy, and materials, though only financials rank among the top four thus far this year. This suggests that the rotation toward these groups will continue.

Given the equity market's benign volatility profile, investors would do well to use individual-stock options to play these four sectors through this year by establishing positions in the midst of the current pullback.

All have implied volatility near multi-year lows, so buying slightly out-of-the-money January 2014 calls could provide an economical means to initiate leveraged long positions. The maximum risk is capped at the premium paid for the positions, while the upside is unlimited.

That will prove fortuitous if equities resume their upward trend, as I expect them to do.